Climate Volatility and Trade Policy in Tanzania

Climate volatility affects agricultural variability, and an extreme climate outcome has the potential to detrimentally affect food supply and prices in a given country. International trade has the potential to reduce the impacts of climate-induced food production variability, although it may further expose the country to international price volatility. This study focuses on Tanzania and finds that global production volatility has very little effect on domestic grains prices due to the country’s limited integration with the international grains market. Almost all the price volatility in grains is attributable to domestic production volatility. At the same time, an export ban that was a response to the 2005-2008 food price crisis increases potential domestic grains price volatility. Rural agricultural households that are net sellers of grains, or rely on revenue from grains production as their primary source of income, may be particularly vulnerable to high income volatility through climate-induced production variability. If Tanzania experiences extremely positive shocks to grains production – due to exceptionally good climate outcomes for example – total revenue from grains falls by 2 percent under the 2001 national trade regime, with the revenue decline becoming 5 percent if there is an export ban on grains.